Investment Office ANRS

Project Profile on the Establishment

of Electric Water Heater Making
Plant

Development Studies Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary................................................................................ 1
2. Product Description and Application ................................................... 1
3. Market Study, Plant Capacity and Production Program................... 1
3.1 Market Study....................................................................................................... 1
3.1.1 Present Demand and Supply ....................................................................... 1
3.1.2 Projected Demand ....................................................................................... 2
3.1.3 Pricing and Distribution .............................................................................. 3
3.2 Plant Capacity ..................................................................................................... 3
3.3 Production Program ............................................................................................ 4
4. Raw Materials and Utilities ................................................................... 4
4.1 Availability and Source of Raw Materials .......................................................... 4
4.2 Annual Requirement and Cost of Raw Materials and Utilities........................... 4
5. Location and Site .................................................................................... 5
6. Technology and Engineering ................................................................. 5
6.1 Production Process .............................................................................................. 5
6.2 Machinery and Equipment .................................................................................. 5
6.3 Civil Engineering Cost ........................................................................................ 7
7. Human Resource and Training Requirement ..................................... 7
7.1 Human Resource ................................................................................................. 7
7.2 Training Requirement ......................................................................................... 8
8. Financial Analysis ................................................................................... 8
8.1 Underlying Assumption ...................................................................................... 8
8.2 Investment ........................................................................................................... 9
8.3 Production Costs ............................................................................................... 10
8.4 Financial Evaluation ......................................................................................... 10
9. Economic and Social Benefit and Justification.................................. 11
ANNEXES ................................................................................................... 13
 1. Executive Summary
This project envisages production of 6000 pieces of electric water heaters having different size
per annum. The total investment requirement of the project including the working capital is
estimated at about Birr 5.6 million; of which more than Birr 2 million is the cost of machinery
and equipments while the working capital is estimated to be 1.6 million. Based on the cash flow
statement, the calculated internal rate of return (IRR) and simple rate of return (SRR) of the
project are 24.5 % and 24.7 %, respectively. The net present value (NPV) at 18 % discounting
rate is about Birr 1,411 thousand. The plant is expected to create employment opportunities for
about 81 persons.

2. Product Description and Application

Electric water heaters provide a ready supply of hot water at not more than 85 oC temperature.
The water heaters have two sections: the internal water tank which stores the water to be heated
electrically, and the external cover. A thermal insulation material is placed in the space between
the two sections. Water is electrically heated and the temperature is thermostatically controlled.
The normal capacity of electrical water heaters is between 25 to 200 litters. Electrical water
heaters are installed in home, hotels, hospitals, restaurants and in other places where there is need
of hot water for washing and cleaning.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

With the expansion of urbanization, the urban population of the country increases every year.
This increases the need of washing and cleaning facilities; which, in turn, stimulates the demand
for water heating apparatuses. As electric energy is getting available in almost all urban centers
of the country, the most common water heating apparatus is the electric water heater.

1
The market for electric water heater is assessed based on the application listed earlier. The
demand assessment is analyzed using the trend of supplies of the product, which are composed
of only imports.
Table3.1 shows the yearly supplies of electric water heaters during the period 1990 E.C to 1999
E.C.
TABLE 3.1
IMPORT OF ELECTRIC WATER HEATERS

YEAR E.C Imports( In Kg) Imports( In Pieces)

1990 167,479 11,165
1991 54,483 3,632
1992 220,222 14,681
1993 172,070 11,471
1994 316,249 21,083
1995 278,433 18,562
1996 353,404 23,560
1997 433,690 28,913
1998 533,470 35,565
1999 482,970 32,198
Total 3,012,470 200,831
Average 301,247 20,083

In the past ten years, a total of 200,831 pieces of electric heaters were imported. This implies, on
average, 20,083 electric heaters were imported per annum. In the past five years, however, the
trend in electric heaters import has been showing a significant increase; during the period,
average import surges to more than 30 thousands per annum.

3.1.2 Projected Demand

The basis of demand projection is the trend in growth of past supplies or, when that trend proves
inadequate, the anticipated growth in GDP, particularly growth in the modern residential housing
construction sector. In this regard, the past trend seems inadequate because the growth in the
supply of the product is much higher in the recent years than the preceding years. On the other
hand, according to Ministry of Finance and Economic Development, the average growth rate in
real GDP for the past few years is around 10 % per annum and that of the construction sector is
more than that. Therefore, this project conservatively assumes that the demand for electric
heaters will increase at 10 % per annum for the coming ten years.

2
Based on this, the projected demand for electric heaters for the following ten years is given in
Table 3.2.
TABLE 3.3
DEMAND PROJECTION FOR ELECTRIC HEATERS

Year E.C In Pieces

2000 35,418
2001 38,960
2002 42,856
2003 47,141
2004 51,855
2005 57,041
2006 62,745
2007 69,019
2008 75,921
2009 83,513
2010 91,865

As it is seen in the above projection, the demand for electric heater is expected to reach at 57,041
by the year 2005 E.C while demand for the product is projected to be nearly 92 thousand by the
end of the decade.

3.1.3 Pricing and Distribution

Although selling prices vary from time to time as a result of fluctuations in supplies, currently
the selling prices of electric baking ovens rang from 1000 up to 1800 per piece depending on the
size and origin. The envisage project plans to sell the 25 liter at Birr 800 and the 50 liter at Birr
1200 per piece. There are different possible modalities of sales and distribution. In this particular
case, it is suggested that producer-retailers-consumer be the option.

3.2 Plant Capacity

The envisaged plant will have a production capacity of 6000 units of various sizes (3000 pieces
of 25 liter capacity and 3000 pieces of 50 liter capacity) electric water heaters per annum. The
plant will operate two shifts per day and 275 working days per annum. This is set by deducting
all Sundays and public holidays in a given year, and by setting aside 25 days for annual
maintenance period and unexpected work interruptions.

3
 3.3 Production Program

The production program follows gradual capacity utilization due to technological and market
reasons. In the beginning, in order to produce the product with the desired degree of accuracy,
operators relatively require longer time than the standard. The market problem refers to the time
required to penetrate the market. Accordingly, the 1st year of production is estimated to be 50 %
of the total capacity. In the second and third years the production will be 65 % and 80 % of the
production capacity, respectively. The fourth year on wards the plant will operate at full
capacity.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

Except the materials for the packaging, all raw materials are imported from abroad.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual consumption of raw materials and inputs is listed in Table 4.1.

TABLE 4.1
RAW MATERIAL AND INPUT REQUIREMENT

Quantity Value
Zinc Plated Steel Sheet, Steel Rods and Clamps 183 tons 1287405
Heating Elements 6000 pcs 405000
Thermostatic Control 6000 pcs 48600
Thermometer 6000 pcs 40500
Indicator Lamps 6000 pcs 16200
Non-Return Value 6000 pcs 97200
15mm Pipe (Brass or Copper) 360000
Glass Wool or Similar Thermal Insulation Material 337500
Packaging Material and Others 180000
Total Annual Cost of Raw Materials and Inputs 2,772,405

4
[

TABLE 4.2
UTILITIES REQUIREMENT

No. Utility Requirement Unit Price Cost

(Annual) (Birr)
1. Electricity 162,000 KWH Birr 0.55 /KWH 89,100
2. Water 2400 m3 Birr 2.65 /m3 6,360
Total 95,460

The total cost of utility which includes cost of electric power consumption and that of water
supply is estimated to reach at Birr 95,460.

5. Location and Site

For its convenience for distribution to different parts of the country, Debre-Birhan is an
appropriate choice for the electric water heater making plant in the region.

6. Technology and Engineering

6.1 Production Process

The inner and outer casings are rolled to from the cylindrical shape of the required size. The tank
is welded and drilled to allow the insertion of pipes and heating element. The inlet and outlet
pipes are welded. The heating element is fitted in position. Painting and assembly of various
parts is carried out. After electrical connections are made, the tank is tested and packed for
dispatch.
Currently, there is no alternative technology in fabricating electric water heater of the above
time.

6.2 Machinery and Equipment

The required machinery and equipment and the costs involved are shown in Table 6.1

5
 TABLE 6.1
MACHINERY AND EQUIPMENT REQUIREMNTS

No. Item Quantity

1 Bench Lathe Diameter 500 mm 1
2 Guillotine Shearing Machine 1200mm Wide and Up To 1.5mm 1
Thickness Cutting Capacity
3 30 Tons Power Press 1
4 Bending with Flanging mcn 1
5 Bench Drilling mcn 1
6 Bench Grinder 1
7 Power Hack Saw 1
8 Hand Shear 1
9 Arc Welding Set 1
10 Compressor with Spray Painting Equipment 1
Gas Welding Set 1
F.O.B 1,757,638
Testing Equipment 1
1 High Voltage Tester 2.5 Kg 1
2 500 V Mugger 1
3 Volt Meter 1
4 Watt Hour Meter 1
5 Thermometer Ammeters Etc. 1set
F.O.B Price 30,000
Total FOB of Machinery and Equipment Birr 1,787,648
Insurance and Freight 5% FOB 89,382
Bank Charge 15 CIF 18,770
Port Handling = 2% CIF 37,540
Erection Cost 100,000
Total Machinery and Equipment 2,033,330

The total cost of machinery/equipment is estimated at Birr 2 million of which nearly Birr 1.8
million is in foreign currency.
Machinery Supplier’s Address:
Weldor Engineering Private Limited
Dhebarbhai Road (South),
Rajkot – 360002, Gujarat,
India

6
 6.3 Civil Engineering Cost
The building area required by the plant is estimated to be 600 m2, and it costs Birr 1,200,000.
This would include cost of land preparation and associated civil works. The total land area of the
plant, including the open space, is1000 m2 , and its lease cost equals Birr 54,500. The cost of the
land lease is as per ANRS land lease rate for Debre-Birhan which is equal to Birr 54.50 per
square meter for industrial purpose. Of the total cost of the lease, 5 % is paid in the beginning
while the rest will be paid in 40years.

7. Human Resource and Training Requirement

7.1 Human Resource
Details of the manpower requirement of the plant is shown in Table 7.1
TABLE 7.1
MANPOWER REQUIREMENT

Description No Monthly Salary Annual

(Birr) Salary (Birr)
A. Administration
1. Manager 1 3000 36000
2. Engineer 1 2000 24000
2. Supervisors 2 1000 24000
3. Technicians 6 1000 72000
5. Personnel Officer 1 1000 12000
6. Accountant 1 1000 12000
7.Seretary 1 800 9600
8.Slaesman 2 800 19200
9. Cashier 1 600 7200
10. Storekeeper 1 600 7200
11.Guards 4 300 14400
Sub-Total 21 237,600
B. Production
1. Skilled workers (Welders and 30 800
Machine Operators) 288000
2. Unskilled Workers 30 300
(Assistants) 108000
Benefits (20%) 126720
Total 81 760,320

The total annual wages and salary, including 20 % benefits, amount to Birr 760,320.

7
 7.2 Training Requirement

One month on job training is required for the technical personnel. And this can be managed by
hiring one expert in the area from the technology suppliers.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of Electric Water Heater making plant is based on the data provided in
the preceding chapters and the following assumptions.

A. Construction and Finance

Construction Period 2 Years

Source Of Finance 40 % Equity and 60% Loan
Tax Holidays 2Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

B. Depreciation

Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

8
 C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 Days

Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 5.6 million
as shown in Table 8.1 below. The Owner shall contribute 40 % of the finance in the form of
equity while the remaining 60 % is to be financed by bank loan.
TABLE 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land
2,725 2,725
Building And Civil Works
1,200,000 1,200,000
Office Equipment
50,000 50,000
Vehicles
500,000 500,000
Plant Machinery & Equipment
233,330 1,800,000 2,033,330
Total Fixed Investment Cost
1,986,055 1,800,000 3,786,055
Pre Production Capital
Expenditure* 99,303 189,303
Total Initial Investment
2,085,358 1,800,000 3,975,358
Working Capital at Full Capacity
469,289 1,131,231 1,600,520
Total 2,554,646 2,931,231 5,575,878
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

9
The foreign component of the project accounts for Birr 2 million or 36.5 % of the total
investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 5 million (See Table 8.2).
Raw materials and utilities account for 64.9 %
TABLE 8.2
PRODUCTION COST AT FULL CAPACITY

Raw Material Requirement Cost

1. Local Raw Materials 180,000
2. Foreign Raw Materials 2,592,405

Total Production Cost at full Capacity

Items Cost
1. Raw materials 2,772,405
2. Utilities 95,460
3. Wages and Salaries 760,320
4. Spares and Maintenance 113,582
Factory Costs 3,741,767
5. Depreciation 406,194
6. Financial Costs
267,642
Total Production Cost 4,415,602

8.4 Financial Evaluation

I. Profitability
According to the projected income statement (See Anne 4) the project will generate profit
beginning from the second year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.

10
 II. Breakeven Analysis
The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 28.4 % of capacity utilization

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in three years.

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 24.7 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 25.4 % and the net present value (NPV) at 18 % discount is Birr 1,411thousands.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.

9. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In

11
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 1.1 million per
year and Birr 10.5 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 4.3 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

C. Import Substitution and Foreign Exchange Saving

As there is electric water heater making plant in the country, the commencement of this project
relieves a portion of the import burden. That is, based on the projected figure we learn that in the
project life an estimated amount of US Dollar 5.4 million will be saved as a result of the
proposed project. This will create room for the saved hard currency to be allocated on other vital
and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 81 professionals as well as support
stuffs. Consequently the project creates income of Birr 760 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

12
ANNEXES

13
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 50% 65% 80% 100%

1. Total Inventory 0.00 0.00 1329014.80 1727719.24 2126423.69 2658029.61

Raw Materials in Stock- Total 0.00 0.00 575433.82 748063.96 920694.11 1150867.64

Raw Material-Local 0.00 0.00 9818.18 12763.64 15709.09 19636.36

Raw Material-Foreign 0.00 0.00 565615.64 735300.33 904985.02 1131231.27

Factory Supplies in Stock 0.00 0.00 2262.52 2941.28 3620.04 4525.05

Spare Parts in Stock and Maintenance 0.00 0.00 6195.36 8053.97 9912.58 12390.73

Work in Progress 0.00 0.00 56563.09 73532.02 90500.95 113126.19

Finished Products 0.00 0.00 113126.19 147064.04 181001.90 226252.37

2. Accounts Receivable 0.00 0.00 327272.73 425454.55 523636.36 654545.45

3. Cash in Hand 0.00 0.00 46678.91 60682.58 74686.25 93357.82

CURRENT ASSETS 0.00 0.00 1127532.62 1465792.41 1804052.20 2255065.24

4. Current Liabilities 0.00 0.00 327272.73 425454.55 523636.36 654545.45

Accounts Payable 0.00 0.00 327272.73 425454.55 523636.36 654545.45

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 800259.89 1040337.86 1280415.83 1600519.79

INCREASE IN NET WORKING CAPITAL 0.00 0.00 800259.89 240077.97 240077.97 320103.96

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 2658029.61 2658029.61 2658029.61 2658029.61 2658029.61 2658029.61

Raw Materials in Stock-Total 1150867.64 1150867.64 1150867.64 1150867.64 1150867.64 1150867.64

Raw Material-Local 19636.36 19636.36 19636.36 19636.36 19636.36 19636.36

Raw Material-Foreign 1131231.27 1131231.27 1131231.27 1131231.27 1131231.27 1131231.27

Factory Supplies in Stock 4525.05 4525.05 4525.05 4525.05 4525.05 4525.05

Spare Parts in Stock and Maintenance 12390.73 12390.73 12390.73 12390.73 12390.73 12390.73

Work in Progress 113126.19 113126.19 113126.19 113126.19 113126.19 113126.19

Finished Products 226252.37 226252.37 226252.37 226252.37 226252.37 226252.37

2. Accounts Receivable 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45

3. Cash in Hand 93357.82 93357.82 93357.82 93357.82 93357.82 93357.82

CURRENT ASSETS 2255065.24 2255065.24 2255065.24 2255065.24 2255065.24 2255065.24

4. Current Liabilities 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45

Accounts Payable 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45

TOTAL NET WORKING CAPITAL REQUIRMENTS 1600519.79 1600519.79 1600519.79 1600519.79 1600519.79 1600519.79

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 1987678.88 3588198.66 3327272.73 3998181.82 4898181.82 6130909.09
1. Inflow Funds 1987678.88 3588198.66 327272.73 98181.82 98181.82 130909.09
Total Equity 795071.55 1435279.47 0.00 0.00 0.00 0.00
Total Long Term Loan 1192607.33 2152919.20 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 327272.73 98181.82 98181.82 130909.09
2. Inflow Operation 0.00 0.00 3000000.00 3900000.00 4800000.00 6000000.00
Sales Revenue 0.00 0.00 3000000.00 3900000.00 4800000.00 6000000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 1987678.88 1987678.88 3867097.25 3721747.64 4530596.96 5470265.89
4. Increase In Fixed Assets 1987678.88 1987678.88 0.00 0.00 0.00 0.00
Fixed Investments 1893027.50 1893027.50 0.00 0.00 0.00 0.00
Pre-production
Expenditures 94651.38 94651.38 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 1127532.62 338259.79 338259.79 451013.05
6. Operating Costs 0.00 0.00 1873987.23 2424436.92 2974886.61 3708819.53
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 325310.16 485203.44
8. Interest Paid 0.00 0.00 865577.40 401463.18 334552.65 267642.12
9.Loan Repayments 0.00 0.00 0.00 557587.75 557587.75 557587.75
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 1600519.79 -539824.52 276434.18 367584.86 660643.20
Cumulative Cash Balance 0.00 1600519.79 1060695.27 1337129.45 1704714.31 2365357.51

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00
Sales Revenue 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 4972415.47 4966936.27 4920098.89 4315673.77 4315673.77 4315673.77
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 3708819.53 3708819.53 3708819.53 3708819.53 3708819.53 3708819.53
7. Corporate Tax Paid 505276.60 566707.92 586781.08 606854.24 606854.24 606854.24
8. Interest Paid 200731.59 133821.06 66910.53 0.00 0.00 0.00
9. Loan Repayments 557587.75 557587.75 557587.75 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 1027584.53 1033063.73 1079901.11 1684326.23 1684326.23 1684326.23
Cumulative Cash Balance 3392942.04 4426005.77 5505906.88 7190233.11 8874559.34 10558885.57

4
 Annex 2: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 3000000.00 3900000.00 4800000.00 6000000.00

1. Inflow Operation 0.00 0.00 3000000.00 3900000.00 4800000.00 6000000.00

Sales Revenue 0.00 0.00 3000000.00 3900000.00 4800000.00 6000000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 1987678.88 1987678.88 2674247.12 2664514.88 3214964.57 4514126.93

3. Increase in Fixed Assets 1987678.88 1987678.88 0.00 0.00 0.00 0.00

Fixed Investments 1893027.50 1893027.50 0.00 0.00 0.00 0.00

Pre-production Expenditures 94651.38 94651.38 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 800259.89 240077.97 240077.97 320103.96

5. Operating Costs 0.00 0.00 1873987.23 2424436.92 2974886.61 3708819.53

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 0.00 485203.44

NET CASH FLOW -1987678.88 -1987678.88 325752.88 1235485.12 1585035.43 1485873.07

CUMMULATIVE NET CASH FLOW -1987678.88 -3975357.75 -3649604.87 -2414119.76 -829084.33 656788.74

Net Present Value (at 18%) -1987678.88 -1684473.62 233950.65 751954.38 817543.64 649488.82

Cumulative Net present Value -1987678.88 -3672152.50 -3438201.85 -2686247.47 -1868703.83 -1219215.01

5
 Annex 2: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00

1. Inflow Operation 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00

Sales Revenue 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 4214096.13 4275527.45 4295600.61 4315673.77 4315673.77 4315673.77

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 3708819.53 3708819.53 3708819.53 3708819.53 3708819.53 3708819.53

6. Corporate Tax Paid 505276.60 566707.92 586781.08 606854.24 606854.24 606854.24

NET CASH FLOW 1785903.87 1724472.55 1704399.39 1684326.23 1684326.23 1684326.23

CUMMULATIVE NET CASH FLOW 2442692.62 4167165.17 5871564.56 7555890.79 9240217.02 10924543.25

Net Present Value (at 18%) 661555.12 541355.10 453435.28 379741.57 321814.89 272724.49

Cumulative Net present Value -557659.89 -16304.79 437130.49 816872.07 1138686.96 1411411.45

Net Present Value (at 18%) 1,411,411.45

Internal Rate of Return 25.4%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 50% 65% 80% 100% 100%

1. Total Income 3000000.00 3900000.00 4800000.00 6000000.00 6000000.00

Sales Revenue 3000000.00 3900000.00 4800000.00 6000000.00 6000000.00

Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 1682768.30 2187598.79 2692429.28 3365536.60 3365536.60

VARIABLE MARGIN 1317231.70 1712401.21 2107570.72 2634463.40 2634463.40

(In % of Total Income) 43.91 43.91 43.91 43.91 43.91

3. Less Fixed Costs 597412.48 643031.68 688650.88 749476.48 749476.48

OPERATIONAL MARGIN 719819.22 1069369.53 1418919.84 1884986.92 1884986.92

(In % of Total Income) 23.99 27.42 29.56 31.42 31.42
4. Less Cost of Finance 865577.40 401463.18 334552.65 267642.12 200731.59

5. GROSS PROFIT -145758.17 667906.35 1084367.19 1617344.80 1684255.33

6. Income (Corporate) Tax 0.00 0.00 325310.16 485203.44 505276.60
7. NET PROFIT -145758.17 667906.35 759057.03 1132141.36 1178978.73

RATIOS (%)

Gross Profit/Sales -4.86% 17.13% 22.59% 26.96% 28.07%

Net Profit After Tax/Sales -4.86% 17.13% 15.81% 18.87% 19.65%

Return on Investment 15.07% 21.32% 20.81% 25.10% 24.74%

Return on Equity -6.54% 29.95% 34.03% 50.76% 52.86%

7
 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00

Sales Revenue 6000000.00 6000000.00 6000000.00 6000000.00 6000000.00

Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 3365536.60 3365536.60 3365536.60 3365536.60 3365536.60

VARIABLE MARGIN 2634463.40 2634463.40 2634463.40 2634463.40 2634463.40
(In % of Total Income) 43.91 43.91 43.91 43.91 43.91

3. Less Fixed Costs 611615.93 611615.93 611615.93 611615.93 611615.93

OPERATIONAL MARGIN 2022847.47 2022847.47 2022847.47 2022847.47 2022847.47
(In % of Total Income) 33.71 33.71 33.71 33.71 33.71

4. Less Cost of Finance 133821.06 66910.53 0.00 0.00 0.00

5. GROSS PROFIT 1889026.41 1955936.94 2022847.47 2022847.47 2022847.47

6. Income (Corporate) Tax 566707.92 586781.08 606854.24 606854.24 606854.24

7. NET PROFIT 1322318.49 1369155.86 1415993.23 1415993.23 1415993.23
RATIOS (%)

Gross Profit/Sales 31.48% 32.60% 33.71% 33.71% 33.71%

Net Profit After Tax/Sales 22.04% 22.82% 23.60% 23.60% 23.60%

Return on Investment 26.11% 25.75% 25.39% 25.39% 25.39%

Return on Equity 59.29% 61.39% 63.49% 63.49% 63.49%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 1987678.88 5575877.54 5903150.27 5965892.51 6265543.61 6971006.30
1. Total Current Assets 0.00 1600519.79 2188227.89 2802921.86 3508766.51 4620422.75
Inventory on Materials and Supplies 0.00 0.00 583891.70 759059.22 934226.73 1167783.41
Work in Progress 0.00 0.00 56563.09 73532.02 90500.95 113126.19
Finished Products in Stock 0.00 0.00 113126.19 147064.04 181001.90 226252.37
Accounts Receivable 0.00 0.00 327272.73 425454.55 523636.36 654545.45
Cash in Hand 0.00 0.00 46678.91 60682.58 74686.25 93357.82
Cash Surplus, Finance Available 0.00 1600519.79 1060695.27 1337129.45 1704714.31 2365357.51
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1987678.88 3975357.75 3569164.20 3162970.65 2756777.10 2350583.55
Fixed Investment 0.00 1893027.50 3786055.00 3786055.00 3786055.00 3786055.00
Construction in Progress 1893027.50 1893027.50 0.00 0.00 0.00 0.00
Pre-Production Expenditure 94651.38 189302.75 189302.75 189302.75 189302.75 189302.75
Less Accumulated Depreciation 0.00 0.00 406193.55 812387.10 1218580.65 1624774.20
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 145758.17 0.00 0.00 0.00
TOTAL LIABILITIES 1987678.88 5575877.54 5903150.27 5965892.51 6265543.61 6971006.30
5. Total Current Liabilities 0.00 0.00 327272.73 425454.55 523636.36 654545.45
Accounts Payable 0.00 0.00 327272.73 425454.55 523636.36 654545.45
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1192607.33 3345526.52 3345526.52 2787938.77 2230351.02 1672763.26
Loan A 1192607.33 3345526.52 3345526.52 2787938.77 2230351.02 1672763.26
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 795071.55 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02
Ordinary Capital 795071.55 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 -145758.17 522148.18 1281205.21
9.Net Profit After Tax 0.00 0.00 0.00 667906.35 759057.03 1132141.36
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 0.00 667906.35 759057.03 1132141.36

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 7592397.28 8357128.02 9168696.12 10584689.35 12000682.58 13416675.82
1. Total Current Assets 5648007.28 6681071.02 7760972.12 9445298.35 11129624.58 12813950.82
Inventory on Materials and Supplies 1167783.41 1167783.41 1167783.41 1167783.41 1167783.41 1167783.41
Work in Progress 113126.19 113126.19 113126.19 113126.19 113126.19 113126.19
Finished Products in Stock 226252.37 226252.37 226252.37 226252.37 226252.37 226252.37
Accounts Receivable 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45
Cash in Hand 93357.82 93357.82 93357.82 93357.82 93357.82 93357.82
Cash Surplus, Finance Available 3392942.04 4426005.77 5505906.88 7190233.11 8874559.34 10558885.57
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1944390.00 1676057.00 1407724.00 1139391.00 871058.00 602725.00
Fixed Investment 3786055.00 3786055.00 3786055.00 3786055.00 3786055.00 3786055.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 189302.75 189302.75 189302.75 189302.75 189302.75 189302.75
Less Accumulated Depreciation 2030967.75 2299300.75 2567633.75 2835966.75 3104299.75 3372632.75
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 7592397.28 8357128.02 9168696.12 10584689.35 12000682.58 13416675.82
5. Total Current Liabilities 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45
Accounts Payable 654545.45 654545.45 654545.45 654545.45 654545.45 654545.45
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1115175.51 557587.75 0.00 0.00 0.00 0.00
Loan A 1115175.51 557587.75 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02
Ordinary Capital 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02 2230351.02
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 2413346.57 3592325.30 4914643.79 6283799.65 7699792.88 9115786.11
9. Net Profit After Tax 1178978.73 1322318.49 1369155.86 1415993.23 1415993.23 1415993.23
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 1178978.73 1322318.49 1369155.86 1415993.23 1415993.23 1415993.23

10